Sunday, May 19, 2013

Today's links

1---The housing bears are rightfully frustrated, oc housing

Like so many other epic bubble years’ housing market explosion epicenters, Las Vegas real estate caught fire again pushing prices up 30% YoY vs the 10% national average. This statement alone should raise a plethora of red flags to anybody remotely familiar with the sector. But to Wall Street, which has a memory of about 9 months at best, this is what a “housing market recovery” looks like this time around. I beg to differ.

That’s because there is little about the past year of ‘better’ housing market data that is rooted in economic fundamentals (things that drive “durable housing market expansion). It’s not like house sales volume, rents, jobs, or income is surging. It’s not like supply is so ‘low’ because demand is surging; rather, it’s because 6 million units of supply headed for market was rented back to its’ legacy owners by the banks and gov’t in the form of mods; several states made it virtually illegal to foreclose; and foreclosure timelines were being stretched out 15 days for every 30 that passed.

2--Cannabis: Colorado's budding industry, Guardian

Dispensaries selling cannabis bath salts, 'bud-tenders' advising on blends, even a marijuana university. As Colorado gears up for legalisation, we get the dope on Denver's 'green rush'...
 
Getting stoned in Denver is as unexceptional as getting a cup of coffee or a beer. In some ways, it's easier: there are more marijuana dispensaries in Denver than liquor stores or branches of Starbucks. In the shadow of the Rocky Mountains, Denver has become America's highest city.

Marijuana has been legal for medical use in Colorado since 2000 and, last November, Colorado and Washington became the first US states to legalise recreational use. Coloradans are allowed to have six cannabis plants at home and an ounce in their pocket. In January next year, the first specially regulated retail stores will open to sell marijuana to anyone aged over 21.

Denver was founded as a mining town during the 19th-century gold rush, and the reversal of state marijuana laws has sparked what people here call a green rush. Everyone wants a slice of the pie, selling plants and resin, marijuana-laced gourmet food, pipes, growing equipment, cultivation courses, balms, you name it. Businesses are opening every week. No longer the drug of choice for the drop-out or the slacker, weed is where the consultants, critics and entrepreneurs are focusing their energies....

Within the next five years, the governor's office expects the industry to grow to as much as five times its current size. The state will be able collect tax of up to 15%, with the first $40m already earmarked to build public schools across Colorado.

Amendment 64, which legalises marijuana for recreational use in Colorado, has been a massive headache for the state's government, and governor John Hickenlooper had been vocally against legalisation. It came about through a "citizens' initiative": if enough people sign a petition asking for a constitutional amendment in Colorado, it can be put to the vote. The Amendment 64 ballot took place on the same day as last year's presidential election, and more Coloradans voted for marijuana than for Obama. It passed with 53% of the vote, catching the state off guard

3---Ian Fraser: The beauty and insanity of HFT, naked capitalism

High frequency trading is a catch-all term that describes the practice of firms using high-powered computers to execute trades at very fast speeds – sometimes thousands or millions of trades per second. These systems have developed over the past ten years, and began to really dominate Wall Street over the last five. For example, a high-frequency trader might try to take advantage of miniscule differences in prices between securities offered on different exchanges: ABC stock could be offered for one price in New York and for a slightly higher price in London. With a high-powered computer and an “algorithm,” a trader could buy the cheap stock and sell the expensive one almost simultaneously, making an almost risk-free profit for himself…

4---Fed's action won't influence deposit growth , sober look

We continue to receive emails pointing to what some have called "a broken monetary transmission" in the US. On the surface the argument looks compelling. The Fed's securities purchase program is expanding the monetary base - the amount of dollars in the system. In theory some of those extra dollars should encourage the banking system to extend more credit than it normally would, ultimately growing the broad money supply (M2 for example). But that's not how things turned out



While deposit growth fluctuated over time, it has maintained a steady growth trajectory. Recessions, market booms, Fed's policy, reserve requirements, etc. have had a relatively minor impact on deposit expansion in the long run (movement of money into equities and property in the early 90s had a bit of an inflection). And based on this fit, we are currently right about where we should be in terms of the overall deposit levels.

The assumption that the banking system can generate unlimited amounts of broad money simply because the banks have been injected with record levels of reserves is wrong. Banks' capacity to grow credit has always been limited, and it's no different this time. The "monetary transmission" is not broken - it is simply constrained.

The recent fluctuations are due to flows into stocks, mutual funds, short-term income funds (see post), etc. Deposits in the system will continue to grow at roughly 6.8% a year as they have done for the past 40 years, possibly longer.  Therefore the broad money supply - a great deal of which are deposits - will never keep up with recent unprecedented growth in the monetary base (which is up 18% YoY). The elevator "isn't going to move any faster".

5----Old-fashioned Austerity, P Krugman, NYT

6---
Euro Crisis Mires Continent in Longest Slump Since War
WO-AN786_Euecon_G_20130515190023
Source: WSJ

7---Is the Fed "printing money"? Well, yeah, Jesse

when the Fed 'creates money' (or liquidity if you prefer) and buys Treasury and Agency Debt from the Banks at non-market rates, it is not really creating money.  It is a benignly useless action.  It simply gives the banks 'cheap liquidity' that they can choose to use as they wish.  I wish they would buy some useless paper from me at non-market rates.  I accept all major forms of payment.

The Banks hold this liquidity, and use it to prop up their zombie Balance Sheets.  I don't think the virtual dollar sequentially numbered and marked.  So they may also use it, and more properly the vig obtained therein,  and pay themselves bonuses from their leveraged up gambling.  Oh I forgot, Dodd-Frank changed that.  Except for 'hedging.' 
"While banks cannot control the overall level of excess reserves, there are a several ways they can reduce the level of excess reserves on their own individual balance sheets. They can lend excess reserves to other banks in the federal funds market, they can lend them to consumers or businesses, or they can purchase securities. Each of these outlets has been constrained for various reasons since the recession."

Cleveland Fed, The Federal Reserve's Influence Over Excess Reserves
Keep in mind that my argument here is not the true nature of excess reserves, but rather, is the Fed 'printing money' by expanding its Balance Sheet.

Normally the Fed does not have to print money.  The Federal Reserve Banks do that for themselves under their charters with the consent and oversight of the Fed, and subject to the prevailing capital requirements. 

But when the real economy, as typified in the recent collapse and the continuing plunge of the velocity of money indicators, the Fed picks up the ball and prints money for the benefit of the economy.  They use this to 'lower interest rates' except in a liquidity trap wherein that is like pushing a rope. 

I think what some of these helpful pundits are trying to say is that the Fed is not 'printing money' so that it is becoming an inflationary problem.  They are giving that 'money' to the Banks, and they hold it for safekeeping.  And for their gambling stash. And for credit cards and food stamp distributions and other fee generating activities.  And for loans to pay dividends, and fund share buybacks, and the occasional industrial activity.

And among other things it involves the payments on excess reserves that they are paying to the Banks to sit on that money.  And the gaming of the financial markets to which they turn a blind eye.  And the enormous abuses in the financial system which have still not been reformed.

And keep in mind that the purpose of my writing this is not to argue about 'excess reserves' but rather with regard to the question of whether the Fed is 'printing money.'  Yes they are.  The quibble is what is being done with that money, which the Fed is providing in its function as the lender of last resort by buying Treasuries, and sometimes dodgy paper at non-market prices, and providing a subsidy to the Banks in the process. 

That the Banks are NOT getting that money to the real economy in sufficient amounts is another matter perhaps.  There is a difference between liquidity and risk. 
And I think that there is a strong indication that the interest rate policy mechanism of the Fed has broken down because Banks, or at least those holding those Reserves, are not making the bulk of their profits from conventional lending any longer. 

They are making their profits through various forms of private investment and the many permutations of prop trading.  And their lending preferences tend towards further financialization of the economy.  This is the downside of the lack of serious reform.

8---The Fed Is Printing Money, But Where Is It Going? They Know But Will Not Say, Jesse

But Bob McTeer knows Banking, and he knows where most of that QE money has been going.
"Asset purchases by the Fed normally lead to a multiple expansion of money since, at the margin, reserve requirements are only about 10 percent of deposits. The roughly $2 trillion of asset growth from before the financial crisis through QE2 was largely offset, however, by an expansion in excess bank reserves of $1.6 trillion. In other words, the banking system has been sterilizing or neutralizing the impact of the asset purchases on the money supply."
And he knows that this is a form of 'trickle down' approach, and is not stimulating the commercial economy. But it is helping to prop up a banking sector that has never really taken its losses by writing down bad debts, cutting salaries and jobs, and downsizing to a more historical size relative to the real economy....

The Fed’s asset purchases have been increasing bank reserves. The Fed adds Treasuries and Agency MBS’s to its assets and pays, in effect, by crediting the reserve accounts of the banking system. But that’s where it has been stopping."The downward pressure on interest rates isn't doing much. And that is because the US is caught in a modern variation of a liquidity trap, where aggregate demand and organic economic activity has been laid so low by the shock of a massive financial collapse caused by a credit bubble that it cannot rise of its own accord, even with interest rates near zero.
It is true that the Monetary Base, which used to be considered high-powered money because it consists of currency outstanding plus the reserves of the banking system, expands with the expansion of bank reserves. But, with banks hoarding excess reserves as they have been, the Monetary Base has not had its historical impact on the public’s money supply. If one insists on calling the Monetary Base ‘money,’ then it is money that has gone only to the Treasury and the sellers of MBS’s. This has made the financing of our outsized deficit easier and cheaper.
So the good news is that the government is doing all right, and the banking system is in the pink, and even corporate profits are healthy, thanks to tax credits and accounting gimmicks.

The Monetary Base is still high powered money.  That has not changed.  What has changed is that the Fed is paying interest on those idle reserves.  And  the TBTF Banks are still operating like bucket shops using excess reserves and guaranteed deposits.  When they win they keep the winnings, and when they lose, the Fed absorbs their losses.

It is being directed to a powerful and largely unreformed Banking sector.  And that money is being used to fund Wall Street bonuses, speculation in paper assets to create new all time highs in the equity markets, a bond bubble,  the purchase of distressed assets like homes and farmland in huge rent-seeking blocks,  tax subsidies for private hedge funds,

But the real economy languishes.   And this trickle down approach and lack of reform is what is going to cause a serious bout of stagflation, which is a policy error of the first order.  Prices of key goods like healthcare, education, and food are rising with most of the profits flowing to the top one percent, and while wages remain relatively stagnant and jobs growth is anemic

9---The Kill Team, wsws

Gibbs, who was charged with three counts of premeditated murder, was sentenced to life in prison with eligibility for parole in 10 years. His civilian attorney and family refused contact with the filmmakers. Gibbs had already served two tours—one in Iraq and another in Afghanistan. Both Winfield and Morlock characterize him as a sociopath who orchestrated the killings, which were staged to make it look as though the soldiers had come under attack and were therefore involved in legitimate engagements. Gibbs repeatedly referred to the Afghan people as “savages.”

Gibbs may have been the immediate instigator of the crimes and deserves punishment, but he is also something of a scapegoat. The real criminals, responsible for the rivers of blood in Afghanistan and elsewhere, are those who decided on and carried out the policy of aggressive, illegal war. They are to be found in the White House, the Pentagon, Congress and the comfortable offices of America’s leading media outlets.

Many of the film’s interviewees point out that US occupation forces in Afghanistan routinely murder civilians in the course of the neo-colonial war obscenely dubbed “Operation Enduring Freedom...

Atrocities such as those carried out by the “Kill Team” have long been employed in counterinsurgency operations by the US and other imperialist powers to “pacify” populations that resist occupation, from India to Kenya, Ethiopia to Angola, Algeria to Vietnam. The US military provides the training and weaponry with which its soldiers maim and kill. The drive by the American ruling elite to dominate the globe creates the conditions where individual psychosis and sadism must flourish.
The Kill Team is a chilling, disturbing work. Through Morlock’s comments in particular, one of the most articulate of the soldiers interviewed, the audience gets a glimpse of the psychological collateral damage produced by the military’s “warrior” mentality.

“Death and dead bones. You’re taught it’s the norm to be OK with it,” he says at one point. Morlock further comments: “You go home, nothing’s normal. You go home and you’re angry and pissed off. You have no grasp of your emotions. Who could you tell? You turn inward.”

Stoner makes one of the bluntest statements: “You’re training us from the day we join to the day you’re out [of the army] to kill. Your job is to kill.… Your job is to kill everything that’s in your way.… Well, then why the hell are you pissed off when we do it?”

10---     Israel upped the stakes by using Thursday’s edition of the New York Times to deliver a clear warning to Syrian President Bashar Assad that he would “risk forfeiting his regime” if he fulfilled the vow of retaliation to any further airstrikes. That same warning was delivered by Israeli Defense Minister Moshe Yaalon to CIA Director John Brennan Thursday.....Information clearinghouse
 
The Syrian authorities have warned that orders have been given to the army to launch an “automatic” – if unspecified – retaliation should the Israelis launch another airstrike into Syria.
 
 
The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar’s exchange rate to other currencies be valid? If the dollar’s exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.

The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts...
 
What does this illegal manipulation of markets by the Federal Reserve tell us? It tells us that the Federal Reserve sees no way out of printing money in order to support the federal deficit and the insolvent banks. If the dollar came under attack and the Federal Reserve had to stop printing dollars, interest rates would rise. The bond and stock markets would collapse. The dollar would be abandoned as reserve currency. Washington would no longer be able to pay its bills and would lose its hegemony. The world of hubristic Washington would collapse....
 
When the dollar goes, Washington’s power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?
 
12---Korea--Remembering the carnage, global research
 
Noam Chomsky provides a more dramatic description of the situation: “When US forces entered Korea in 1945, they dispersed the local popular government, consisting primarily of antifascists who resisted the Japanese, and inaugurated a brutal repression, using Japanese fascist police and Koreans who had collaborated with them during the Japanese occupation. About 100,000 people were murdered in South Korea prior to what we call the Korean War, including 30-40,000 killed during the suppression of a peasant revolt in one small region, Cheju Island.”...
 
Two million North Korean civilians, 500,000 North Korean soldiers, one million Chinese soldiers, one million South Korean civilians, ten thousand South Korean soldiers and 95,000 UN soldiers (516 Canadians) died in the war. The fighting on the ground was ferocious as was the UN air campaign. US General MacArthur instructed his bombers “to destroy every means of communication and every installation, factory, city and village” in North Korea except for hydroelectric plants and the city of Rashin, which bordered China and the Soviet Union, respectively....
 
Cold War Canada summarizes the incredible violence unleashed by UN forces in Korea: “The monstrous effects on Korean civilians of the methods of warfare adopted by the United Nations — the blanket fire bombing of North Korean cities, the destruction of dams and the resulting devastation of the food supply and an unremitting aerial bombardment more intensive than anything experienced during the Second World War. At one point the Americans gave up bombing targets in the North when their intelligence reported that there were no more buildings over one story high left standing in the entire country … the overall death toll was staggering: possibly as many as four million people. About three million were civilians (one out of every ten Koreans). Even to a world that had just begun to recover from the vast devastation of the Second World War, Korea was a man-made hell with a place among the most violent excesses of the 20th century.”

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